Sign up with your email address to be the first to know about new products, VIP offers, blog features & more.

Up is Up

The stock market is running. The economy … not so much. So what is going on?

A quote I wrote down months ago (but not the author). It sums it up:

“we expect robust flows … to dominate fundamentals.”

In a perfect world one invests in the stocks of well-managed companies that are growing sales and earnings in a sound and strong economy. However, this bull market is not that. Yes, well-managed companies are growing sales and earnings. Yes, the price of the stock market relative to its underlying earnings, although rich, is not excessive. However, it is not a sound and strong economy.

What is driving this market is: liquidity.

“Credit is super-abundant and stock market behavior is conditioned not so much by the fundamental performance of its underlying companies but by increasing doses of monetary Ritalin.” (link)

Our Federal Reserve is pushing a reported $85 billion of newly created cash in the banking system every month and dropping interest rates to near zero. Much of this new cash is buying stocks. Also, savers that are faced with near zero CD rates, are searching for some return and buying dividend stocks.

Furthermore, the European Central Bank appears to be no longer backstopping their citizen’s bank deposits. Money is moving out of Europe and finding a home here (Link). Japan with its aggressive yen devaluation plan is also a benefit to our stock market (Link).

Robust inflows of cash are driving this stock market higher without concern for the economic uncertainty all around us. The psychology of Birinyi’s bull market cycle is in full swing (see below). The stock market is running. Up is up.